The deal helps “externally verify” the Duvernay formation
as being “one of the best liquids-rich plays in Canada,” said
Randy Eresman, chief executive officer of Encana Corp. (ECA),
Canada’s largest gas producer.

The Duvernay shale, which is soaked in natural gas as well
as petroleum liquids such as propane and ethane, which fetch
higher prices, may rival the mammoth Eagle Ford formation in
south Texas, Eresman said in an interview yesterday in his
Calgary office. The Eagle Ford holds the equivalent of 25
billion barrels of crude, according to ITG Investment Research,
or enough to supply North American crude demand for 3 years.

“The major oil companies are recognizing that Canada
represents an enormous opportunity to build out their portfolios
in unconventional” resources such as shale, Gianna Bern,
founder of Brookshire Advisory and Research Inc., a Chicago-
based risk-management adviser to energy producers, said in an
interview yesterday.

Large Blocks

In western Canada, drilling rights often are held in large
blocks by small companies, making it easier for major
international explorers to snap up significant holdings without
having to deal with thousands of individual landowners, as they
must in U.S. shale regions such as Ohio and Louisiana, said
Brook Papau, an analyst at ITG Investment in Calgary.

The C$24.50 a share Exxon will pay amounts to a 35 percent
premium to Celtic’s Oct. 16 closing price. With 76 percent of
the reserves to be acquired comprised of gas, Exxon is wagering
that a cold North American winter and expanding use of gas in
place of coal at power plants will lift prices that touched a
decade-low in April, said Chris Kettenmann, an analyst at
Phoenix Partners Group LP.

Artek rose 23 percent to C$2.98 yesterday in Toronto. It
dropped to C$2.90 at market close today after announcing it sold
shares to banks and brokerages. Cequence climbed 12 percent
yesterday and was little changed today, while NuVista added 6.6
percent, bringing its two-day gains to 20 percent. All three are
based in Calgary. Tourmaline added 6.6 percent yesterday and was
little changed today while Paramount rose 8 percent over the
last two days.

Face Challenges

Encana is seeking a partner to develop its Duvernay
acreage, one of a handful of joint venture packages the company
is marketing. He expects “at least one” deal to close by
year’s end, Eresman said.

“This just shows the value embedded in the acreage, not
just this deal,” Eric Nuttall of Sprott Asset Management in
Toronto said in a telephone interview yesterday.

Exxon is not alone in the shale fields that span parts of
Alberta and nearby provinces such as British Columbia and the
Yukon. Royal Dutch Shell Plc (RDSA), the world’s third-largest energy
company by market value after Exxon and PetroChina, has been
prospecting in the Duvernay shale since 2008. Chevron Corp. (CVX) also
has holdings there.

Duvernay explorers may face challenges in making the
prospect competitive with other North American fields. Duvernay
wells cost about C$12 million each to drill, Sveinung Svarte,
chief executive officer at Athabasca Oil Corp. (ATH), said in a
conference call with analysts Oct. 16. That’s about 36 percent
more than the $9 million Continental Resources Corp. said last
week it was spending on wells in a new discovery called the
South Central Oklahoma Oil Province, or SCOOP.

Amassing Acreage

The cash-and-stock deal with Celtic is the Irving, Texas-
based company’s largest in Canada since the 1999 merger of Exxon
and Mobil Corp., according to data compiled by Bloomberg.

“The economic and environmental advantages of natural gas
are clear - and markets around the world will increasingly seek
this cleaner burning source of energy to fuel progress and
prosperity,” Andrew Swiger, an Exxon senior vice president said
in a speech last month. “With North America’s abundant
supplies, natural gas will be a valued contributor to jobs and
energy security in Canada, the United States, and around the
world.”

Exxon probably is most keen on the Duvernay shale portion
of the Celtic transaction, said Nuttall, who oversees C$110
million at Sprott. The U.S. energy explorer is unlikely to
attempt to ship any of the gas produced in the Duvernay or
Montney areas to Canada’s west coast for export as liquefied
natural gas, or LNG, as it would require the construction of a
pipeline over mountains at a cost of $1 billion, he said.

Too Dense

Exxon has been amassing shale acreage from south Texas to
the Yukon Territory after spending almost $35 billion in 2010
for XTO Energy’s gas fields and shale-drilling experts.
Benchmark gas futures traded in New York have risen 16 percent
this year, on track for the first annual gain in a half decade.

“It’s clear prices are going higher,” Kettenmann said in
a telephone interview from New York yesterday. “Exxon is
following through on the bet they made with XTO.’

Exxon, which has been drilling for oil and gas in Canada
for more than seven decades, will acquire rights to 104,000 net
acres in the Duvernay and 545,000 acres in the Montney Shale.
Exxon has been deploying XTO engineers versed in horizontal
drilling and hydraulic fracturing to crack open shale formations
from Argentina to the Northwest Territories.

Exxon already held vast leases in other so-called
unconventional gas and oil prospects across western Canada,
including the Horn River Basin and the Cardium and Viking
fields. Unconventional prospects are geologic formations such as
shale that are too dense or non-porous to be tapped without
intensive drilling and fracturing techniques.

In the past four weeks, Chairman and Chief Executive
Officer Rex Tillerson agreed to spend almost $5 billion in cash,
stock and asset swaps to expand Exxon’s North American shale
holdings, including the deal announced yesterday. On Sept. 20,
Exxon disclosed a $2 billion deal for Denbury Resources Inc. (DNR)’s
acreage in the Bakken shale of North Dakota and Montana.